Three dually registered broker-dealers and investment advisers – FSC Securities Corporation, Royal Alliance Associates, Inc., and SagePoint Financial, Inc. – settled charges brought by the Securities and Exchange Commission that, from October 2012 to 2014, they invested client funds in mutual fund share classes with higher expenses, when they could have invested the client funds in share classes of the same funds with lower expenses. As a result, the respondents received approximately US $2 million more in fees.
The SEC charged the respondents with failing to disclose in a required filing with it (i.e., Form ADV) that they “had a conflict of interest due to a financial incentive to place … clients in higher-fee mutual fund share classes.” The SEC also charged respondents with not adopting any compliance policy regarding mutual fund share class selection.
To resolve the SEC’s complaint, the respondents agreed, jointly and severally, to disgorge the amount of extra fees they received plus interest (approximately US $2 million) and to pay a fine of US $7.5 million. Each of the respondents are indirect subsidiaries of American International Group Inc.